Innovate like a startup or like big business?

by Chad McAllister

Startups are king when it comes to innovation. Indeed, established companies often strive to behave more like startups. But in reality, it is quite challenging. Startups, on the other hand, wish they had access to resources, particularly capital. So, there’s something to be said for the large corporation: It has experience, distribution channels, and access to cash. Each wants what the other has.

To learn more about the interplay between start-ups and larger companies, I interviewed the author of Collective Disruption: How Corporations and Startups Can Co-Create Transformative New Businesses. He shares that true transformative innovation comes from collective disruption — when corporations and startups get together to innovate. The author is Michael Docherty, a leading innovation expert and entrepreneur with a variety of broad-based experiences from senior-level corporate roles, start-ups, consulting and venture capital.

I expect you’ll find value in the discussion if you have interests in innovation from either the startup perspective or the larger organization perspective.

In this discussion you will also learn what Collective Disruption is and the 4-stage framework for applying it:

Discover,

Define,

Incubate, and

Integrate.

Below are the key topics we discussed, followed by the link to the interview.

What is transformative innovation?

You first have to start with the question why do the large companies need help. Consumers and customers expect more, there’s more competition and options, and product lifecycles are shrinking every year. One statistic talks about 75% of the current S&P 500 being off that list within the next 7 years. What we used to call permanent isn’t permanent anymore, and that’s why the old approach to innovation doesn’t work anymore – core innovation is not enough. Companies need to make transformative innovation a bigger part of their growth strategy. Here’s where startups come in. What makes established companies great are all of the systems and engines of growth they have around optimizing their brands and distribution and business models. But when it comes to starting something new, all of those things that help you optimize a big company, are the exact same things that get in your way in building new business models. That’s really why companies are looking to startups as a way to fuel growth.

What are the benefits for startups working with larger companies?

First is to have a built-in exit partner. Next is to have a partner that can help you reverse engineer your startup in a way that in the end gives you a better result [examples are in the interview]. Another is that, especially for early-stage startups, the VC market is a very different than it was 10 years ago. Strategic investments from corporates can be a great alternative to that.

The 4 stages of Collective Disruption

It starts with Discover. The Discover phase is really around leveraging startups and the innovation ecosystem generally, as a way to fuel your strategy. Companies should be saying, “Let’s look at, based on the areas where we want to play, who are the key players in those spaces, and what relationships can we build in order to bring new competencies to the table?” So you start to think about developing an innovation strategy that isn’t just about what you can do well, but also about what other companies that you have relationships with or are building relationships with, can bring to the table.

Stage 2 – Define

This involves bringing more clarity to the possibilities. This may involve the startup making a pivot. In the Define stage, both the startup and the established company look at the opportunities together and decide what actions to take.

Stage 3 – Incubate

This is putting designs together – getting prototypes created and doing small market tests. There are three models for incubation:

Inside-in: separate internal teams loosely integrated with the established company. Lowes is an example of this.

Inside-out: creating more separation and pushing opportunity to the outside, such as moving people out to incubators and accelerators. Techstars, an accelerator, is an example, who has partnerships with many large companies.

Outside-in: bringing someone into the established company to manage a new opportunity. Jarden (makes Mr. Coffee and other consumer products) is an example. They wanted to take the Crock-Pot brand and move into premium food to create new sources of revenue. They hired an experienced executive to lead the new venture.

Stage 4 – Integrate

Too often this is where the collective disruption goes bad because the opportunity gets squandered. To avoid this, integrating is knowing from the beginning what the desired approach is to incorporating the new business into the established company. The new business may be left independent or integrated into the established company. You need to think about how the people involved are integrated and how cultures can merge. Consider keeping the new business separate and integrating in phases over time.